(1 of )Judge Alan Jaroslovsky saw a 7 percent drop in the number of bankruptcy in Sonoma county cases appearing in his U.S. Bankruptcy Court in the past year.

Bankruptcies drop in Sonoma County

Sonoma County bankruptcy filings in 2011 fell for the first time in five years as fewer consumers sought protection from creditors.

However, a near-record number of residents and companies in Sonoma County are still struggling with debt despite the end of the recession nationally in 2009, according to new figures released this week by the U.S. Bankruptcy Court in Santa Rosa.

Sonoma County consumers and businesses filed 2,380 bankruptcy cases last year, down from 2010 but still the second-highest number in records going back more than two decades.

Bankruptcy filings peaked in 2010 as consumers and businesses sought to escape debt that piled up during the recession.

Three in four cases were filed by residents and companies attempting to liquidate their debts in Chapter 7 — sometimes called a "fresh start" bankruptcy.

The plunge in housing prices that began in 2007 is believed responsible for a spike in a category of personal bankruptcy known as Chapter 13. The number of such cases has risen steadily for five years and jumped 11 percent last year on the North Coast to 1,113 cases, or nearly a quarter of all bankruptcy filings.

This type of bankruptcy can allow underwater homeowners a chance to keep their homes by removing debt from a home equity line of credit but not from the primary, or first, mortgage.

"It's people trying to get rid of the second mortgage," said Santa Rosa bankruptcy attorney Ed Dechant.

Dechant sees a possible jump in Chapter 7 bankruptcies this year if foreclosures increase, due to the recent $25 billion mortgage settlement between banks and various state attorneys general. While foreclosure satisfies the debt on the principal mortgage, the lenders of home equity loans can still seek repayment of those debts. In response, he said, many who lose their homes will seek protection from those creditors.

Robert Eyler, director of Sonoma State University's Center for Regional Economic Analysis, said the sluggish nature of hiring, wage growth, business income and home prices indicate that bankruptcy filings aren't likely to drop sharply in the near term.

What's Available Right Now?

The PD's real estate blogger has created a gallery of the 18 least expensive homes available right now in Sonoma County. See them here.

"There's still people out there hanging on by their fingernails," he said.

Similarly, Santa Rosa bankruptcy attorney Doug Provencher said many businesses are meeting ongoing expenses for now, but their debts far exceed their assets. In time, the depletion of inventory or some other obstacle will force them into bankruptcy protection.

"There are still a lot of what I call zombie businesses," Provencher said.